 "Low oil prices pull down banks' lending")
The continued drop in crude oil prices and decrease in the subsidy bill of the oil marketing companies have led to a fall in the loans given out by banks.
The financial institutions claim the cycle of the big drop in their loan growth could last up to one year.
Oil marketing companies have seen their working capital needs decline by a huge margin due to the crude oil prices being on a downward slide since June. Crude oil prices have come off 36 per cent since June and are currently trading at $70 a barrel. The international crude oil price of the Indian basket was at $67.98 a barrel (bbl) on December 4. Decrease in borrowings has brought down the year-to-date (April-till now) credit to the largest bank, State Bank of India (SBI) by Rs 13, 000 crore. "The demand for working capital has declined after fall in oil prices and subsidy reforms. Oil companies were borrowing significantly when they were in a tight spot due to the subsidy burden. The corporate credit growth has declined after demand from oil companies slowed down," said an official from SBI.
When the oil prices were high and the government reimbursed oil marketing companies after a gap, short-term bank loans were a crucial source of financing for the companies. Also, the government did not reimburse the interest incurred on these loans. According to Reserve Bank of India data the exposure of banks to petroleum, coal and the nuclear energy segment has been on the decline all through this financial year (2014-15). In March, the outstanding loans to this segment was Rs 63,500 crore. It declined to Rs 55,500 crore in October. Indian Oil Corporation, the biggest borrower among the three oil marketing companies, has seen its borrowing at the end of November drop by Rs 25,000 crore.
"The underrecovery has fallen, due to which interest on borrowings has also come down. Decline in crude oil prices have brought borrowings down. Also, with our foreign exchange borrowings sliding, our foreign exchange risk will also ease. This is a big advantage," said a senior official from Hindustan Petroleum Corporation.
BPCL did not reply to an email questionnaire sent last week.
Madan Sabnavis, chief economist, Care Ratings, said oil companies would benefit from subsidy reforms and fall in global crude oil prices. This is will help improve the credit profile of the companies. Moody's, in its report on the Indian oil and gas sector, had said the credit metrics of refiners were expected to improve. Over the next 12 months, IOC's and Bharat Petroleum Corporation Limited's total borrowings and interest costs are expected to decline in tandem with the decrease in fuel subsidies. This will result in improved credit metrics for IOC and BPCL.
The financial institutions claim the cycle of the big drop in their loan growth could last up to one year.
Oil marketing companies have seen their working capital needs decline by a huge margin due to the crude oil prices being on a downward slide since June. Crude oil prices have come off 36 per cent since June and are currently trading at $70 a barrel. The international crude oil price of the Indian basket was at $67.98 a barrel (bbl) on December 4. Decrease in borrowings has brought down the year-to-date (April-till now) credit to the largest bank, State Bank of India (SBI) by Rs 13, 000 crore. "The demand for working capital has declined after fall in oil prices and subsidy reforms. Oil companies were borrowing significantly when they were in a tight spot due to the subsidy burden. The corporate credit growth has declined after demand from oil companies slowed down," said an official from SBI.
When the oil prices were high and the government reimbursed oil marketing companies after a gap, short-term bank loans were a crucial source of financing for the companies. Also, the government did not reimburse the interest incurred on these loans. According to Reserve Bank of India data the exposure of banks to petroleum, coal and the nuclear energy segment has been on the decline all through this financial year (2014-15). In March, the outstanding loans to this segment was Rs 63,500 crore. It declined to Rs 55,500 crore in October. Indian Oil Corporation, the biggest borrower among the three oil marketing companies, has seen its borrowing at the end of November drop by Rs 25,000 crore.
"The underrecovery has fallen, due to which interest on borrowings has also come down. Decline in crude oil prices have brought borrowings down. Also, with our foreign exchange borrowings sliding, our foreign exchange risk will also ease. This is a big advantage," said a senior official from Hindustan Petroleum Corporation.
BPCL did not reply to an email questionnaire sent last week.
Madan Sabnavis, chief economist, Care Ratings, said oil companies would benefit from subsidy reforms and fall in global crude oil prices. This is will help improve the credit profile of the companies. Moody's, in its report on the Indian oil and gas sector, had said the credit metrics of refiners were expected to improve. Over the next 12 months, IOC's and Bharat Petroleum Corporation Limited's total borrowings and interest costs are expected to decline in tandem with the decrease in fuel subsidies. This will result in improved credit metrics for IOC and BPCL.